Our Rating Methodology
Our rating formula relies on financial data, product offering, underwriting time, history, and consumer complaints. We update our data in the 4th quarter of each year when new financial reports are released. Financial strength is a key component of our ratings, as it is the most important factor to consider when choosing a life insurance company. We put in many ours of analysis to have our list of the top 10 life insurance companies be free from bias.
Types of Coverage
There are two main types of life insurance you can buy. The most popular choice is term life insurance, which gives you coverage for a set number of years. The other type is permanent life insurance, also called whole life, which provides coverage for your entire life as long as premiums are paid.
In terms of value, term life insurance is hard to beat. The monthly premiums are low and the coverage amounts are high. Whole life is much more expensive, but has other features that term lacks, such as the cash value component. To learn more about the difference between term and whole life, see our article on term vs whole life insurance.
When buying an insurance product that may be needed 20+ years from now, you want to be certain that the company will be able to pay the claim. To address this very concern, there are many 3rd party rating agencies that grade the financial strength of insurance companies. There are several that you will see reporting grades for insurance companies:
- AM Best
- Standard & Poors
Each rating agency has a different way of assessing and reporting the financial strength of an insurance company. Generally, the companies are rated like a report card. You’ll see that the high ratings are A’s and the low ratings are B or C. We advise shoppers to choose a company with high financial ratings. The reasoning behind this is simple, life insurance is meant to be a safety net for your family. The net is only as strong as the insurance company’s ability to pay its claims.
The rating agencies determine their ratings by analyzing data like:
- Annual amount of premiums collected
- Annual amount of claims paid
- Total reserves and assets
- Cash flow
- Return on investments
- Potential risks in the short-term and long-term.
A good rule of thumb is to choose a company that has the letter “A” in its ratings and avoid the companies that do not.
Underwriting is the process of the insurance company processing your application and issuing a decision. Underwriting time can vary widely from company to company and even from product to product. We are living in a time where technology is making life insurance easier to purchase, and one of the areas to recently improve in life insurance is underwriting time.
The standard process of buying life insurance takes 4-6 weeks. This is how long it takes from start to finish. You submit your application, the health exam is scheduled, and then you take the exam and wait for a decision.
Many companies now offer accelerated underwriting, which means that certain applicants can breeze through the process without needing to take an exam. Some companies offer products that do not require the exam at all. This is referred to as simplified issue life insurance. These policies generally get issued in under a week. This is possible because the insurance company can look at digital records such as your prescription report, driving record, and MIB record.
One important thing to keep in mind when applying for life insurance that advertises an instant decision is what happens if you get declined. The instant issue policies have very strict requirements, and they are quick to decline an applicant. When you go to apply for a different policy, you now have to disclose that you applied somewhere else and were declined. This can affect their decision on your application.
The size of the life insurance company can tell you a few things about the organization. A company with 10,000+ employees likely has a very high financial rating, offers many products, and is a stable choice. However, some people do not like dealing with large companies when it comes to customer service. You could end up with long hold times and a lack of personal service. You may like working with a financially strong, specialty life insurance company with just a few hundred employees.
Why should the age of a life insurance company matter to you? The average lifespan of a male and female in the US is around 80. If you bought life insurance in your forties, it's important to know the company you are putting your business with has a positive financial outlook and will have the ability to pay claims years down the road.
We factor in age as part of our criteria. After all, if a company has made it through the great depression, ww1,ww2, and the great recession, all while being able to make good on their commitment to their policyholders, we think that's worth something.
It should come as no surprise that companies that are the oldest often have more assets under management. The assets each life insurance company accumulates over the course of its time in business serve as a shield of financial strength and backing for its policyholders. A mature insurance company with a diverse portfolio is a key indicator that a company is well positioned to be in business for years to come.
Each state in the US has its own department of insurance, and each company has to maintain a license in an individual state. Because of this, some companies do not sell their insurance products in certain states. To save time, be sure to select your state in the filter to make sure you don’t choose a company that isn’t available to you.
You are not required to work with an agent or company in your state. Many people seem to think they need to find a life insurance company near them in order to buy. Life insurance can be bought online and over the phone without needing to find a local agent. Of course, you are welcome to work with a local agent should you prefer to do so.
Ways to Buy
Even the century old life insurance industry has caught on to the fact the consumer expectations are changing. 98% of consumers say they would use the internet to research a product before buying. If you are one of that group that seeks a user friendly buying process we have you covered.
While most prefer to research online, we have found that some consumers still desire the assistance of a licensed agent. With the amount of information life insurance companies require, it can feel assuring to hear a voice on the other line prior to submitting your information.
In Person - Agent
Whether you buy online, via phone, or in person, you are always buying from a licensed life insurance agent. How you go about purchasing, receiving customer support, and maintaining your life insurance policy is your choice. If you choose to buy from a local life insurance agent that's in your network, we can help point you in the right direction.
When looking at complaints on a company, you have to take this data with a grain of salt. Most complaints stem from billing errors and customer service. It is rare that a life insurance company does not pay a claim. When conducting research, we analyzed the annual reports of over 50 companies. We looked at the percentage of claims that were contested and why they were contested. Overall we found it to be a very small percentage, and the most common reason claims are contested is material misrepresentation. Material misrepresentation is a fancy term for lying on the application. If you are looking for the best life insurance company that will pay out, just be sure to answer the questions on the application truthfully, and select a company with strong financial ratings.
A good place to look at reviews of a life insurance company is the Better Business Bureau. However, remember that the BBB is a complaint board. It is easy to get a feeling that a company is bad by looking at their BBB page and seeing hundreds of complaints. Remember to consider how many customers an insurance company can have, and that 100 complaints may actually be a very small fraction of their total customers.
Another good place to start is the NAIC. They have a public facing tool that allows you to look up complaint data on insurance companies. However, the reason for these complaints can be about marketing & sales and have nothing to do with customer service or paying claims.
As a budget-minded shopper, price is always going to play a role in any purchase decision. We see life insurance shoppers looking for the cheapest prices every day. Before you go jumping on the lowest price you see, there are a few key things to consider.
- The best life insurance company is the one with the highest rating that will underwrite you favorably. This means the best financial ratings and the best price given your current health.
Every insurance company has different rules for how they price policies. For example, if you are in the 50% of Americans that have used at least one prescription drug in the last 30 days, your price can vary from company to company. If you are overweight, you will also see that your price can vary from company to company. These are quick examples, but you can imagine how complex it can get when you are factoring in your health history, medications, and family history.
Some life insurance companies quote people low rates, and once the underwriting is complete they determine they do not qualify for the initial rates. The industry refers to this as a “bait and switch”. This is something to keep in mind when you see a life insurance rate that is much lower than the other quotes.